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The Wealth of the Nation
Australians often pride themselves on living in the land of the 'fair go'. This signals a concern with having equality of opportunity and with sharing the benefits of working together for common goals. Yet the reality is often very different. Economic inequalities between rich and poor Australians result in some people having a notably easy ride while others do it very tough. The deep-seated economic inequalities also have major social and political consequences. They fracture social cohesion and create power imbalances that can undermine the nominally democratic institutions.
Recent research into these issues has deepened our understanding of the roots of current social problems. Social scientists have shown, for example, that there are significant statistical and causal links between economic inequality and the incidence of ill-health (both mental and physical), obesity, violence and prison incarceration. Countries with the greatest inequality tend to have the highest incidence of these social disorders. Recent evidence from the International Monetary Fund also indicates some adverse economic consequences: nations with high inequality tend to have weaker national economic performance. One should hardly be surprised, because nations – like households, workplaces or sporting teams – are more likely to be productive and successful when the participants believe that the fruits of their co-operation will be fairly shared. So, while some inequalities can create useful incentives in competitive situations, there are good reasons to be concerned with keeping the overall extent of inequality within reasonable bounds.
From a public policy perspective, it is particularly important to take economic inequalities into account. Indeed, governments have to be concerned with fairness in all aspects of their policies. Education and health policies are obvious examples. But an emphasis on narrowing inequality needs to be present in all public policies – ranging from pensions and superannuation to disability services, housing provision, transport, regional policies and, of course, taxation. It is a two-way process. The prevailing patterns of economic inequality determine what we need and expect from public policies; while the policies themselves shape the extent of the inequality, for better or worse.
Yet big questions remain about how we understand economic inequality, its measurement and significance. Most people think of inequality in terms of income differences. Indeed, there is a growing gap – a yawning chasm, one might say – between the huge remuneration packages of many corporate CEOs and the low incomes of people in casual service sector jobs and other low-wage employment. But even more fundamental than these income differences are the differences in the value of the assets that rich and poor people own. It is the presence or absence of this accumulated wealth that determines people's social position and their opportunities in life. It impacts significantly on the start that their children have, causing cumulative social inequalities over time. 'Who owns what' shapes 'Who gets what'.
Governments therefore need to be generating good information about the distribution of wealth. For too long they have not done so. The last official national census of wealth in Australia was 101 years ago. But in recent years we have been getting better data from the Australian Bureau of Statistics (ABS) and the Melbourne Institute’s survey of household income and labour dynamics in Australia (HILDA). International data compiled by the OECD, together with valuable research by political economist Thomas Piketty, has given us a better basis for understanding how the extent of wealth inequality in Australia compares with other nations. This report prepared by the Evatt Foundation points to the need for reforms to improve the information on the distribution of wealth. Its main purposes, however, are to marshal the existing evidence, show its characteristics and limitations, and contribute to the clearest possible picture of wealth inequality among Australian households.
The results are startling. Australia as a whole has become much wealthier since 1970, with the total stock of capital growing about twice as fast as national income during the years since then. But inequality has markedly increased during this same period, and continues to increase. Currently the poorest 40% of Australian households have effectively no wealth at all: about half of them actually have negative net wealth because of their personal debts. At the opposite pole, the wealthiest 10% of Australian households have more than half the nation's total wealth. The Top 1% of households alone has at least 15 per cent of the nation's wealth. This affluent elite – the Top 10% and especially the Top 1% – is getting cumulatively richer, not only relative to poor households but also, significantly, in relation to the next 50% of households. Two fault lines are widening – between the bottom 40% and the rest, and between the Top 10% and the 50% in the middle.
Dealing with this situation is perhaps the biggest challenge facing our political leaders today. Of course, there are other recurrent stresses too – most obviously, climate change, financial instability and job insecurity. But these challenges are all inter-linked, and they all need to be addressed in relation to economic inequality. If the policy responses are not equitable they will not be sustainable. The cherished idea of the 'fair go' would then be a dwindling feature of life in Australia. This Evatt report, although quite technical in parts, seeks to make a positive contribution to meeting this crucial social and political challenge.
The Wealth of the Nation: Current Data on the Distribution of Wealth in Australia was published by the Evatt Foundation on 27 June 2016.